All Forum Posts by: Josh Starner

Have you explored your options of moving the property over to a LLC and doing a commercial cash out refi? By utilizing a Debt Service Coverage Ratio loan you may have the option to pull up to 80% out of the house and provide some liability protection by having the property held in the LLC. This would obviously depend on market rent, past income or active leases.

I think that it is incredibly important to understand the importance of real estate in any portfolio. With inflation impacting the price of nearly everything (including housing) money in the bank has become a depreciating asset. It is crucial to do your due diligence but that home run deals may be harder to come by in a sellers market. Something in your price range, that is cash flow positive will not only provide diversification, but additionally allow for tax benefits as well. As prices continue to rise, the analysis paralysis may lead to something worse, regret. 

Hey Richard, I found myself in a similar situation with a two family house a few years ago. Looking back, there are a few lessons that I have learned from that experience.

First, ensure that the are that it is in has a relatively low vacancy rate, if a tenant were to leave this would allow for you to hopefully find a replacement even if the property is not in perfect condition due to a high demand with lower relative supply. 

Secondly I would work immediately on building strong relationships with the tenants to try and reduce turnover. This may include some time on site, or some cosmetic fixes that may mean more to them right off the bat then you. For example some paint can go a long way and some landscaping if often inexpensive especially if you are doing the sweat equity. Let them have some input as it can help create ownership (I have a tenant with dark purple walls, she loves it, has been there 20 years and doesn't plan on leaving she can paint the walls whatever she wants I don't care). 

Examine the major systems in the house (plumbing electrical, roof etc)  and determine a budget over the next few years of capital expenses and factor that into your cash flow. Since you may be new business these prices may be slightly higher as you work on building your network of contractors. If something seems extremely old, or is nearing the end of its anticipated life cycle, proactively get quotes. Things will break during inopportune times, having the quotes and contractors lined up will allow you to move quickly and efficiently as emergency calls always cost the most. At times, depending on your annual cash flow it may make sense to take a capital expense to offset profits (talk to your accountant). Build a 3 or 5 year plan for completing the needed repairs, balancing the ease of repair with the priority of the repair and cost to best reduce your tax liabilities (Again, consult an accountant). 

Lastly, I think reaching out to others here and in your network is a great resource. Often we think we have all the answers and I know I never do. Relying on others for their input and referrals has saved me thousands over the years and resulted in less stress. Best of luck to you! 

Build strong relationships with everyone in your network. These individuals will utilize you first when thinking of real estate or has questions about real estate. These people can become great business partners in the future. 

I am experiencing the same thing investing in the North East, I am seeing property prices in historically STR friendly areas be higher, while areas with deed restrictions driving down prices in STR markets such as the Poconos. In vacation area it is difficult to find a property that will rent long term and generate positive cashflow especially when paying higher prices for these vacation homes that have increased in demand. I've seen as much a 30% premium on properties just because it is in a historically STR friendly area. The market is pricing in the additional income opportunity and lack of risk as a premium on price which in the event things do shift, I will be left holding the bag as I have overpaid.

Hey Patrick, 

Rates are generally higher if it is no longer your primary residence. However, some smaller regional banks offer portfolio owns with favorable terms to investors providing the property is LLC owned but you are willing to back it with personal credit, you will not generally find these loans at bigger banks and are 30 year fixed loans with no prepay. Generally the commercial loan space is higher by about 1% or more and you will pay a premium if it is a multifamily property. and are often subject to a pre-payment penalty in NJ. Some lenders will go up to 80/20 on investment loans and cash outs so I would recommend you shop brokers/banks.

Some great points were made by other contributors.  One concern is your insurance carrier may not provide coverage if the breed is one of the ones on the insurance company hit lists. German Shepherds, PitBulls, anything with wolf in it are often not covered and you may be personally liable if this type of animal is the reason for a claim such as a dog bite. Contact your insurance carrier to confirm coverage and ask what breed the dog is from the tenant. An insurance carrier may request photos of the dog to confirm breed when underwriting a policy. 

Hey Daniel, 

I would recommend to begin the hunt for the 4 plex as quickly as possible. With 1031 exchanges time is often one of the most challenging aspects, especially in the current seller's market.  Should something come up that meets your needs soon, it may be worth considered a reverse 1031 exchange, as it will provide an opportunity to acquire the property you want, but give you up to 180 days to sell your initial investment. However, these can be more costly and you should engage your accountant and attorney prior to making any decisions. But, by buying first you can often mitigate the ticking time bomb of having to identify a replacement property within 45 days. As many agents are not familiar with 1031 exchanges, I think that hiring a 3rd party expert is definitely the right move. 

My recommendation is to avoid the specific areas that require flood insurance, post Hurricane Sandy a lot of the maps were redrawn and some areas now have a higher carrying cost. The rates on flood insurance can erode profits and can be required if you are financing the property. You can check the flood zone by checking the FEMA website.

Hey Matt, 

I agree with your sentiment that remote work culture has shifted the landscape of home desirability. As someone who lives in Asbury Park, I went from being the only year round resident on my street 5 years ago, to one of many who call this "city by the sea" their year round residence. Hybrid work, less taxes, more desirable location (50 bars and an ocean within a mile) create an opportunity for New Yorkers to leave expensive crowded living environments for a hybrid living area to match their hybrid work style.